1. 1 V.Nicoletopoulos MagMin 2011 version May 12 Magnesia 2011: Macro and micro economic factors Industrial Minerals MagMin 2011 Vasili Nicoletopoulos

2. V.Nicoletopoulos MagMin 2011 version May 122 Magnesia 2011: Macro and micro economic factors Contents 1.The global and European situation: economics, finance, politics & policies 2.The Magnesia market today 3.Environmental issues facing the magnesia industry 4.New opportunities and growth in the magnesite sector 5.Conclusions

3. V.Nicoletopoulos MagMin 2011 version May 123 1. Review of the global and European situation – Economics… World economies since MagMin 2009: Contrary to my own predictions, a boom in Asia & elsewhere more than makes up for [predicted] fall in many EU countries [Ireland, Spain, Greece, Portugal,…?] EU economy: Germany up, South down, others in- between Davos 1/11: Zhu Min, special IMF adviser, coined phrase 3-speed recovery : emerging economies set to grow by > 6 pct in 2011, US by 3 pct, euro area by < 2 pct

4. V.Nicoletopoulos MagMin 2011 version May 124 …1. Review of the global and European situation – Economics… EU stimulus packages, European Stability Mechanism: for how long? US: anemic GDP growth, printing money, stimulus packages – ibid Rest of World -China, India booming -Brazil, Russia doing well -China top manufacturing country by output, returning to early 19th century position & ending USs 110-year run as largest goods producer. Inflation concerns loom large for miners

5. V.Nicoletopoulos MagMin 2011 version May 125 …1. Review of the global and European situation – Economics… US-China $ Gulf Stream – Australia-China ties China's ambitious, high-growth 5-year plan stirs climate debate EU budget problems & privatization: Coal miners in Poland protest Fuels: oil up, gas [LNG, fracking]; nuclear major setback – China, Lithuania insisting, Turkey w/ Russia, but Germany & Italy cancelling nuclear program Commodities boom…or bubble?

6. V.Nicoletopoulos MagMin 2011 version May 126 …1. Review of the global and European situation – Economics Australian mining companies recruiting at Expo in Alberta 5/11 High oil prices start to hit demand Indian Premier calls urgent meeting on coal shortage Beware risks inherent in the global recovery RTZ Chairman: "near-term, world financial markets remain fragile. Persistent economic & financial imbalances continue to pose risks"

7. V.Nicoletopoulos MagMin 2011 version May 127 1. Review of the global and European situation - Finance World banking & finance: both tight Interest rates rising again Treasurers role: after 30 years of declining real interest rates, need new mindset: building robustness into capital structures to cope w/ more inflation, higher real interest rates, adverse demographics, declining saving rates in larger Asian economies Magnesia currencies: low USD vs euro/ yen/ real/ Australian dollar - slightly down vs RMB; DPRK: officially USD1=KPW100, market closer to USD1=KPW3000, ie. Nov. 09 redenomination all but neutralized

8. V.Nicoletopoulos MagMin 2011 version May 128 1. Review of the global and European situation – Politics & Policies EU, US: Inequalities, unemployment. Among & within EU countries: eg. Germany plans restructuring Greeces sovereign debt if reforms fail Rising middle classes elsewhere N. Africa & M. East: major turmoil oil/gas, immigration N. Korea problems Blow to push for single EU patent regime

9. V.Nicoletopoulos MagMin 2011 version May 129 1. Review of the global and European situation - Politics and policies, mining… China restricting exports of some minerals, metals. Reasons: own consumption, environment, cost EU RMI – criticality - Raw Materials Initiative: Trade and internal market Resource efficiency strategy WTO examining 1st wave of Chinese export restrictions

10. V.Nicoletopoulos MagMin 2011 version May 1210 …1. Review of the global and European situation - Politics and policies, mining The new geopolitics of oil RTZ: Australia, dont ETS before US, China Rising role of resource nationalism [Ernst & Young] – magnesia unaffected Chinese buying binge for mining companies – ibid EUROFER legal action against EU ETS

11. V.Nicoletopoulos MagMin 2011 version May 1211 2. Review of the Magnesia market situation… Focusing on demand, economics & politics I. Wilson to cover supply A suppliers market Chinese smuggling continues: 400-500 ktpy or 50% of exports to Japan, S. Korea, Taiwan [Asian Metal] New projects on stream: S.Arabia, Turkey,… Magnesia's phoenix and flyers IM May 2011

12. V.Nicoletopoulos MagMin 2011 version May 1212 2. Review of the Magnesia market situation, steel… 2010: biggest increase in 55 years! Global 3/11 crude production: new monthly record 129.3 Mt, driven by growth in Asia even after Japan's earthquakes/tsunami China's 2/11 daily crude 1.94 Mt; year-end capacity 768 Mt -- biggest task: controlling excess capacity–CISA; small blast furnaces stop using costly imported iron ore US: Q1 losses, but signs of improving global economy spurring demand. U.S. Steel sold out in N.America

13. V.Nicoletopoulos MagMin 2011 version May 1213 …2. Review of the Magnesia market situation, steel… ArcelorMittal SA sees sharp drop in Q1 profit German carmakers sales soar Rautaruukki better-than-expected Q1 11 - robust sales, higher prices Turkey's crude up 31 pct Q1 11: 7.9 Mt Ernst & Young: concern about global over capacity & continued increase in input costs

14. V.Nicoletopoulos MagMin 2011 version May 1214 …2. Review of the Magnesia market situation, steel, mi. mt Europ. EU (27)CIS N.AmerS.AmerAsia ChinaJapan Σ* 2004340 203113 1344646513 283113 1 072 2005334 196113 12845596 353113 1 144 2006355 207120 13245672 419116 1 247 2007365 210124 13348757 489120 1 346 2008342 198114 12547771 500119 1 327 2009266 1399898 823838805 5748686 1 229 2010315 173109 1124898 627110 1 414 % 10/0918.624.611.235.715.911.69.325.2 15 *Also includes Africa, M.East, Australia, N.Zealand

15. 15 V.Nicoletopoulos MagMin 2011 version May 12 2. Review of the Magnesia market situation, cement, mi. mt 2010e China1800Egypt48 India220Korea46 USA64S.Arabia45 Turkey60Indonesia42 Brazil59Italy35 Japan56Mexico34 Iran55Germany31 Spain50Thailand31 Vietnam50Pakistan30 Russia49Other Countries520 World Total 10 : e3300 World Total 09 : e3060

16. V.Nicoletopoulos MagMin 2011 version May 1216 …2. Review of the Magnesia market situation… Refractories Global demand to rise 5.3% pa through 14, to 40.7 million metric tons. China to remain largest national market, comprise the majority of global demand RHI seeking security of supply, acquires SMA Magnesia for fused magnesia supply M&A: Krosaki Harima buys Tata Refractories majority 4/11, RHI/Magnesita? RHI Q1 sales up 21% but profit margin down

17. V.Nicoletopoulos MagMin 2011 version May 1217 …2. Review of the Magnesia market situation CCM Good market Brucite Chinese export market keeps active Trade policy EU ccm antidumping terminated 2010, dbm May 2011– 1 st time in over two decades w/o EU MgO antidumping US: mag-carbon brick industry materially injured by subsidised imports fm China & Mexico, in line w/ Dept of Commerces decision EU Chinese ceramic tiles anti-dumping duties WTO and the Chinese export regime

18. V.Nicoletopoulos MagMin 2011 version May 1218 3. Environmental issues facing the magnesia industry… ETS In the EU/EFTA, & ~ nowhere else! Free allowance allocation rules Possible financial support for indirect emission costs…but state-aid issues SILC initiative on funding to reduce GHG Organized criminals stealing EU ETS permits, sparking police hunt across, battering confidence in the 80 billion-euro market Roadmap to a competitive low carbon economy in 2050

19. V.Nicoletopoulos MagMin 2011 version May 1219 …3. Environmental issues facing the magnesia industry EU Energy taxation proposals SOx/NOx emissions reduction --> trading in the EU? REACH CLP: MSDS etc BAT: EU MgO producers case before EU General Court of Justice DPRK eyes carbon market Euromines new Communications Committee

20. V.Nicoletopoulos MagMin 2011 version May 1220 4. New opportunities and growth in the magnesite sector… MgO production side: Natural gas: price down, new deposits due to frack sands MgO demand side: Major breakthrough for a new application [environmental?] still missing Potential exception: Novacem, Calera, TecEco etc. cement absorbing CO2 & other GHG, converting into carbonate [CO3] - Can effectively store CO2 & other pollutants in building materials: CO, NOx, SO2, Hg, particulates,…

21. V.Nicoletopoulos MagMin 2011 version May 1221 …4. New opportunities and growth in the magnesite sector Other EU Innovation strategy Brucite as an alternative magnesium hydroxide source to reduce CO2 output? Can Mg(OH)2 replace aluminium tri hydrate in certain applications? Other? In processing: have not been following – RE turmoil, calcination, SOx/NOx reduction? Blow to push for single EU patent regime

22. V.Nicoletopoulos MagMin 2011 version May 1222 Closing Remarks - Take home - General… World economies defy gravity Rebound in 2010, 2011…mostly in Asia Strong BRIC role China could get as strong as in the early 19th century & ending USs 110-year run as largest goods producer Are govt stimulus packages [+US printing $] sustainable? – debts, deficits Inequalities, unemployment,… Fuel uncertainty

23. V.Nicoletopoulos MagMin 2011 version May 1223 …Closing Remarks - Take home - Magnesia… Strong rebound from 2009 Suppliers market Security of supply comeback Capacity additions No new applications, so far… EU: high emphasis on environment…with nobody else following - Until recently, China the enemy of EU magnesia & EC its ally; now roles reversed!… …but EU producers still profitable China: from exporter to regulator/driver [& consumer? but wherefrom?]

24. V.Nicoletopoulos MagMin 2011 version May 1224 Thank you very much Vasili Nicoletopoulos